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Surging costs of raw materials made worse by Russia's military offensive in Ukraine could set back the dream of Tesla chief executive Elon Musk and other auto executives to create cheaper electric vehicles.
Rising prices of nickel, lithium and other materials are likely to slow and even temporarily reverse the long-term trend of falling costs of batteries, the most expensive part of EVs, hampering the broader adoption of the technology, said Gregory Miller, an analyst at industry forecaster Benchmark Mineral Intelligence.
And that is on top of a supply chain already snarled by the Covid-19 pandemic and the global chip shortage.
"Rising raw material prices certainly have the potential to delay the timeline on cost parity between EV and ICE vehicles, which could hamper the wider adoption of EVs," Mr Miller said, referring to the internal-combustion engine vehicles that dominate the market.
This year could mark the first year-over-year increase in the average price of lithium-ion battery cells, he said.
The conflict in Ukraine has raised the stakes, pushing nickel prices to an 11-year-high on fears that exports from leading producer Russia could be disrupted. Lithium prices also have increased, more than doubling since the year's end, as supply fell short of rising demand.
Russia produces about 7 per cent of the world's mined nickel and is also a large provider of aluminium and palladium.
Rising EV prices — marked by increases over the past year by Tesla and start-up Rivian Automotive — matter because mainstream consumers are not going to pay a large premium for technology that many do not yet fully embrace.
The average EV sold for almost $63,000 in January in the US, about 35 per cent higher than the overall industry average for all vehicles of slightly more than $46,000, research firm Cox Automotive said.
While consumers worry less now about being stranded without power on the roadside, price remains a major concern, a Cox survey showed.
"Anything that adds to the cost will impede EV adoption," Cox analyst Michelle Krebs said.
EVs made up about 9 per cent of total global vehicle sales last year, the International Energy Agency said, and consulting firm AlixPartners expects that share to hit about 24 per cent by 2030.
More than half of consumers are not prepared to pay $500 extra upfront to buy an EV, despite lower operating costs, a 2021 study by OC&C Global Speedometer on consumers in the US, China and other countries found.
That could leave car makers in a bind if they want to attract mainstream buyers, rather than the luxury customers to whom they currently cater.
Tesla has raised the price for its least expensive Model 3 sedan by 18 per cent to $44,990 since December 2020, as supply chain woes weigh heavily. Mr Musk said in January that Tesla would not develop a $25,000 car he promised during 2020 battery day, saying he had too many things on his plate.
Some US dealers have taken advantage of vehicle shortages to charge more for EVs, sparking warnings from car makers such as Hyundai and Ford.
Rivian tried last week to push through a 20 per cent price increase on its electric pickups and SUVs to offset higher parts costs, but retreated for those who had already placed orders when faced with a backlash that included possible sale cancellations.
Another EV start-up, Lucid Group, has not yet raised prices but chief financial officer Sherry House said in February the company was "definitely studying price" to offset higher supply chain costs.
In China, lithium price rises have pressured the makers of such entry-level models as Great Wall's Ora EV and Wuling Hong Guang's Mini EV because they have less room to push through a higher price tag, investors said.
For start-ups, the pressure is particularly intense.
"If you're a small company, you don't have the ability to tell your suppliers to give you a lower price," said Brett Smith, technology director at Centre for Automotive Research.
Battery makers typically have long-term contracts with car makers, under which prices rise to reflect the increased cost of vital raw materials such as lithium, nickel and cobalt, industry officials said.
LG Energy Solution, a supplier to Tesla and General Motors, said raw materials account for 70 per cent to 80 per cent of the cost of its batteries.
Benchmark Mineral Intelligence said battery producers started increasing lithium-ion cell prices late last year in response to the higher raw material prices they had seen throughout 2021.